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(Bloomberg) — Turkish Finance Minister Mehmet Simsek said an oil-price shock triggered by the war in Iran risks temporarily derailing the government’s disinflation program.
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“It is impossible to remain unaffected,” Simsek said in an interview with local network Akit TV late Monday. This is despite what he called “proactive measures” the country has taken to limit the war’s financial impact, including a fuel tax mechanism to shield consumers from rising oil prices and regulatory steps to dampen market volatility.
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Higher energy costs rippling through the Turkish economy risk undercutting the monetary policy used to slow consumer demand, stabilize the lira and rebuild investor confidence.
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The country’s disinflation had already been slowing, mostly due to surging food costs. In February, annual CPI rose slightly to 31.5% — only the second increase in 21 months, and still one of the highest rates in the world. Simsek said the government would ideally like to see inflation slow below 20% by the end of the year; the central bank’s formal target is 16%.
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Oil prices that have risen more than 40% since the start of the war threaten such goals. Because Turkey is an energy importer, a prolonged increase in prices would also risk widening the country’s current account deficit, a key vulnerability that can weigh on the Turkish lira.
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“If you were to ask me which aspect of the economic program concerns me most at this moment, I would say the current account deficit,” Simsek said. Turkey’s 12-month rolling deficit widened to $32.9 billion in February.
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